Feds ratchet Galleon insider trading case

The Federal prosecutors building a case against Raj Rajaratnam, the man at the heart of an insider trading scandal that erupted in October last year, are preparing additional charges against the founder of the Galleon hedge fund. The news comes as one of his alleged co-conspirators, Anil Kumar, a director at management consultancy McKinsey & Co, is reportedly set to file a plea. The speculation is that Kumar has made some kind of a deal with the Feds.

According to a report in the Wall Street Journal, the feds are now alleging that Rajaratnam actually paid for insider information relating to the $5.4bn acquisition of graphics chip and card maker ATI by x64 chip maker Advanced Micro Devices in July 2006.

Rajaratnam's lawyer, John Dowd, has denied the charge, which alleges that Rajaratnam made $19m trading on the ATI info. This is a new and additional charge, and a report in the New York Times indicates that the Feds have found evidence that Rajaratnam was paying for insider information as far back as 2004.

Rajaratnam and one of his co-conspirators, Danielle Chiesi, formerly of the New Castle hedge fund, were indicted on December 15 and both pled not guilty to the charges of insider trading on December 23. The four other people nabbed in the original insider trading scandal - Robert Moffat of IBM, Rajiv Goel (of Intel), Kumar (of McKinsey), and Mark Kurland (of New Castle) - have yet to be charged and are widely believed to be working out some kind of a deal with the Feds.

With the new charges relating to the AMD-ATI deal, the feds are alleging that co-conspirators profited illegally to the tune of $39.8m on insider trades of Akamai, IBM, Sun Microsystems, PeopleSupport, Clearwire, Google, and AMD shares. Other loosely-related insider trading claims came to light on November 5. These centered around former Galleon Group employee Zvi Goffer, alleging illegal trades in 3Com, Avaya, and Kronos (among others) that netted $11m in illegal profits.

The irony is that the feds made their filings of additional charges on Tuesday, when Rajaratnam was set to argue that the court should reduce his bail from $100m to $20m, presumably because of economic hardship because the Galleon Group hedge fund was wound down shortly after the scandal broke. That bail hearing has now been rescheduled for January 12, next Tuesday.

According to a report from Reuters, Kumar - who is alleged to have leaked information about AMD's pending spinout of its chip making business to Rajaratnam - will appear in court on Thursday to enter a plea on the charges the government has brought against him. ®